TRADE
POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIESAustralia: June 1998

The unilateral trade liberalization measures and internal
structural reforms launched by Australia in the early 1990s have led to higher rates of
growth of GDP and productivity, and to lower unemployment.

Australia
should push ahead with trade policy reforms to increase its overall competitivenessBack to top

The unilateral trade
liberalization measures and internal structural reforms launched by Australia in the early
1990s have led to higher rates of growth of GDP and productivity, and to lower
unemployment. The economic reforms, including tariff reform, a reduction in subsidies and
the deregulation and privatization of many services sectors, have improved the
competitiveness of Australian business and stimulated exports. Despite these benefits,
Australia appears hesitant about pushing ahead with reforms, especially for industries
that continue to be relatively heavily protected, such as textiles and clothing and the
automotive sector. A new WTO Secretariat report on Australia's trade policies and
practices suggests that Australia should continue its reforms and address unnecessary
regulatory measures and other structural rigidities that impair the competitiveness of its
economy.

The WTO Secretariat report
and a policy statement prepared by the Government of Australia will provide the basis for
a review at the WTO of Australia's trade policies and practices on 30 June and 2 July
1998.

Australia met its Uruguay
Round commitments by changing all remaining quantitative restrictions in agriculture to
tariffs so that it now relies largely on tariffs, rather than quotas, for import
protection. It also removed export subsidies. Under its unilateral programme, Australia's
average applied tariff declined to 5.6% in 1998 and will be progressively reduced until
2000. Between 1993 and 1998, the simple average tariff declined from 0.9% to 0.3% in
agriculture, from 1.1% to 0.6% in mining and from 11.1% to 6.0% in the manufacturing
sector. Overall, approximately 86% of all tariff lines now bear duties of between 0 and
5%. This is significantly more than the 44% level of 1993.

In spite of the general
tariff reduction, considerable variation still remains within the overall tariff
structure. In particular, Australia's car and textiles and clothing industries continue to
receive relatively higher tariff protection. The discrepancies will be accentuated with
the Government's recent decision to freeze tariff reductions for these industries between
2000 and 2005. For example, duties on motor vehicles will be reduced from 15% to 10% only
after 1 January 2005 rather than by 1 percentage point per year during the period
2000-2005. The Secretariat report argues that this change in policy may thus give the
wrong signal to industries which, on the contrary, should be encouraged to become more
competitive as soon as possible.

Tariff and non-tariff
assistance to agriculture is low. According to government sources, Australia's average,
effective rate of assistance for agriculture was 12% in 1995/96. The dairy industry
(especially milk production) receives assistance in excess of 200%, however. Moreover,
these indicators of assistance do not reflect the economic effects of the restrictions
imposed by Australia's quarantine regime on a large number of agricultural and
food-related products.

Australia continues to be a
significant user of anti-dumping measures. The percentage of imports affected by
anti-dumping and countervailing actions increased between 1993 and 1996, although the
incidence of measures and undertakings in force declined from 86 in 1996 to 47 in 1997.
Recent changes in anti-dumping procedures have considerably shortened investigation
periods and questions arise regarding the seemingly enhanced role of local industry in the
new investigative process.

In the services sector,
which accounts for around 70% of GDP, Australia made WTO commitments in over 90 sectors
and sub-sectors, with MFN exemptions in financial and audio-visual services. As part of
the WTO Agreement on Financial Services, Australia removed its MFN exemption relating to
the stock exchange. In addition, mergers between the four largest banks and the two
largest insurers are permissible under the 1997 financial sector reforms, subject to
approval by the Treasurer; mergers among the four largest banks, however, are not
permitted. In its offer in the WTO Agreement on Telecommunication Services, Australia
allowed unrestricted competition in basic telecommunication services as of July 1997 and
has removed its foreign equity restrictions in the second basic service provider, Optus.
Trade liberalization in the services sector has also been pursued under the Services
protocol signed with New Zealand, exposing them to a greater degree of competition. In
addition, Australia's new competition policy provides for the opening of utilities,
including gas and electricity, to competition. However, other vital services such as
maritime and port services remain to be reformed.

Overall, the report notes,
that despite the obvious benefits of the reform programme, recent developments suggest
that the Australian government may be adopting a more ambivalent attitude to unilateral
trade liberalization, perhaps because of increased susceptibility to pressures from
certain interest groups. However, the report also notes Australia's commitment to the
multilateral trading system and, through the Cairns GroupSee footnote 1, to emphasizing the importance of further
multilateral reforms in agriculture.

The report concludes that it
is crucial for Australia to continue its trade and structural reform process to ensure
strong growth in the long run. This would also help reduce Australia's unemployment rate,
which is still above 8%. Hesitation over pushing through further reforms create anomalies
and distortions in the tariff and assistance structure, and may give mixed signals to
producers and consumers about the Government's commitment to future reforms and their
direction. There is a need, the report says, for ongoing reform to address regulatory
measures and structural rigidities that continue to impair the competitiveness of
Australian industry.

Notes to Editors

The WTO's Secretariat's
report, together with a policy statement prepared the Australian government, will be
discussed by the WTO Trade Policy Review Body (TPRB) on 30 June and 2 July 1998. The WTO's
TPRB conducts a collective evaluation of the full range of trade policies and practices of
each WTO member at regular periodic intervals and monitors significant trends and
developments which may have an impact on the global trading system. The report, together
with a report of the TPRB's discussion and of the Chairman's summing up, will be published
in due course and will be available from the WTO Secretariat, Centre William Rappard, 154
rue de Lausanne, 1211 Geneva 21.

The report covers the
development of all aspects of each of Australia's trade policies, including domestic laws
and regulations, the institutional framework, trade policies by measure and by sector.
Since the WTO came into force, the "new areas" of services trade and
trade-related aspects of intellectual property rights are also covered. Full reports are
available for journalists from the WTO Secretariat on request. The full text of the WTO
Secretariat report is also available for the press in the newsroom of the WTO website.

Since its previous Trade
Policy Review in 1994, Australia has, by and large, pressed on with its unilateral trade
liberalization programme, which has been central to the process of structural reform and
the exposure of Australian business to increased competition. Under the current programme,
the general level, which dropped to 5% in 1996, is expected to be reduced further by the
year 2000. Furthermore, Australia has met its Uruguay Round commitments by tariffying all
remaining quantitative restrictions in agriculture and removing export subsidies. Internal
structural reforms have been seen as complementing the trade liberalization process. There
has been a reduction in subsidies, spurred by the Government's commitment to reduce the
budget deficit. Australia has also recently enacted a new competition policy, which
requires, inter alia, a review of all legislation that may contain anti-competitive
elements and impose costs on business. Moreover, government enterprises, previously
excluded from competition rules, are now subject to the same rules as private business.
Deregulation and privatization are also taking place in many services sectors. A
continuation of the trade reforms, accompanied by comprehensive competition policy reforms
and internal deregulation, is seen as the key to improved competitiveness and the ability
of Australian industry to compete successfully on the international market. The high
degree of transparency regarding the nature and effects of various distortions to
competition have greatly facilitated not only this Review, but the process of trade and
structural reform during the 1990s.

The main outcome of the
reform process is that Australia's rates of GDP and total factor productivity growth have
been among the highest in the OECD group of industrialized countries. Unemployment,
however, although declining from a peak of 11% in 1992/93, remains high at over 8%. It is
crucial that the trade and structural reform process be continued and completed to ensure
strong growth in the long run. This would, in turn, contribute to a further reduction in
unemployment.

Economic environment

Since 1994, the Australian
economy has experienced strong growth, accompanied by low rates of inflation. Prudent
monetary policies have ensured a stable macroeconomic environment for Australian industry,
while fiscal policy has concentrated on the consolidation of the budget deficit and
privatization to reduce the savings-investment gap, which has contributed to persistent
current account deficits. After falling from a peak of 6% of GDP in 1994/95 to 3% in
1996/97, the current account deficit is again rising and, with some repercussions from the
recent financial crisis in Asia, is expected to be around 4.5% in 1997/98 (forecast by the
1997/98 budget to worsen to 5.25% in 1998/99), raising questions about the long-term
implications of the low saving rate.

Significant progress has
been made since the previous Review in raising private saving and curtailing public
dissaving. The Government has maintained its commitment to cut the budget deficit by
reduced spending and is currently involved in efforts to raise private saving, notably
through the implementation of compulsory superannuation and tax rebates on savings.
Nevertheless, in the longer term, the Government will have to tackle the politically
sensitive subject of tax reform, which is expected, among other things, to reduce the
present tax disincentive to save and overhaul the existing sales tax.

Trade and Trade-Related Policy Features and
Recent Trends

Recent developments

Under a unilateral,
predetermined programme, which began in 1991, Australia's applied tariffs declined to a
general level of 5% in 1996 and are expected to fall further in a phased manner until the
year 2000. As a result, unweighted average tariffs have declined from 9.6% in 1993 to 5.6%
in 1998. Overall, approximately 85% of all tariff lines bear duties of between 0% and 5%
in 1998, significantly more than the 1993 level of 44%.

Still, considerable
variation remains within the overall tariff structure. In particular, Australia's
traditionally protected industries, passenger motor vehicles (PMV) and textiles, clothing
and footwear (TCF), continue to receive tariff protection considerably in excess of the
manufacturing average. Furthermore, the Government, contrary to independent advice,
decided in favour of a pause in tariff reductions for the PMV and TCF industries between
2000 and 2005. The pause is significant because it results in higher degrees of tariff
protection for PMV and TCF industries, favouring these two industries at the expense of
others, such as mining and agriculture, which have traditionally received little tariff
protection. In light of the positive adjustment that has taken place in PMV and TCF
industries, largely in response to tariff reductions since 1991, the Government may be
giving the wrong signal to these two industries and to the manufacturing sector in
general.

In the area of foreign
investment, proposals from foreign nationals are, in general, subject to the Foreign
Investment and Takeovers Act, 1975. Investment approval from the Government for small
projects, up to $A 5 million in value, is not required in non-sensitive sectors.
However, investment above this sum or in sensitive sectors is subject to national interest
considerations and must be notified to the Government. Large investments (above $A 50
million) and investments in sensitive sectors, are examined on a case-by-case basis by the
Foreign Investment Review Board, again taking into account the national interest, before
approval is granted.

The previous Review noted
that, despite sluggish growth, the Government implemented a tariff reform programme in
1991 in the belief that unilateral trade liberalization would have a positive effect on
economic growth. The results have been positive for exports, economic growth and
productivity, even in relatively protected sectors such as TCF and PMV. Despite the
obvious benefits of the previous reform programme, several recent developments suggest
that the Government may be adopting a more ambivalent attitude to unilateral trade
liberalization and the provision of assistance to industry, perhaps reflecting its
increased susceptibility to pressures from certain interest groups. For example, apart
from the tariff pause, the Government's new industry policy embodies a more reciprocal and
proactive approach to trade and foreign investment. There has also been a tendency, in
some instances, to bypass the primary independent review (and transparency) body in the
country, the Industry Commission (amalgamated in 1998 into the Productivity Commission) as
regards a number of recent inquiries. These include the Mortimer and Goldsworthy reviews
on which the new industry policy is largely based. The composition of these review
committees appears to suggest greater involvement of industry groups, and thus further
pressure on the Government from these vested interests.

Type and incidence of trade policy instruments

With the exception of a few
tariff lines, representing around 0.3% of the total, Australia relies largely on tariffs,
rather than quotas, for import protection. In addition, strong quarantine provisions
provide substantial additional protection to the food and food processing sectors. The
exceptions include imports of some kinds of cheese, which were subject to a quota during
the period covered by previous Review, and currently face a tariff quota; and a specific
tariff previously faced by sugar importers, which has been removed and tariffs reduced to
zero.

Tariff escalation has, in
general, declined, although in some sectors, such as textiles, clothing and leather
products, it remains significant. Australia's complex tariff concession system, especially
the Policy By-Laws and Tariff Concession Orders (TCO) systems, currently covers around 25%
of total merchandise imports. Although declining in importance, these concessions tend to
exacerbate tariff escalation, notably in industries such as textiles and clothing, where
tariff protection is already considerably higher than the average. A recent recommendation
by the Industry Commission to address tariff anomalies in the TCF and PMV industries, by
reviewing the tariff concession system, has not been adopted by the Government.

Australia's quarantine
regime restricts imports of a large number of agricultural and related food products.
Thus, indicators of tariff protection or effective assistance, which would indicate that
agriculture and food processing are largely unassisted, do not take into account
relatively strict quarantine measures that restrict imports of most products in these
sectors. While the authorities consider these measures to be necessary for the maintenance
of sound health and sanitary conditions in an island continent, and based on scientific
evidence, some are being challenged by WTO Members (Australia's restrictions on imports of
salmon, for example, are currently the subject of a dispute with Canada).

Local-content schemes for
fresh fruit juices and tobacco have been removed to ensure consistency with Australia's
Uruguay Round commitments. However, schemes in the broadcasting sector appear recently to
have been strengthened. In the PMV industry value-added requirements exist to make a
company eligible for the duty-free import allowance scheme.

As part of a general
undertaking to reduce production and export subsidies, government expenditure on both
types of subsidy has in general declined during the period under review. Export
facilitation remains a major feature of support for the PMV industry, however, providing
duty-free imports of cars and components for the export industry. The Government has
recently pledged to replace the export facilitation scheme for the PMV industry with the
Automotive Competitiveness and Investment Scheme (ACIS) in 2001. The scheme, which,
according to the authorities, will be WTO-consistent and run for five years, will provide
benefits averaging $A 300 million per year to the automotive industry.

Australia also continues to
be a significant user of anti-dumping measures. The percentage of imports affected by
anti-dumping and countervailing actions increased between 1993 and 1996, although the
incidence of measures in force and undertakings declined from 86 in 1996 to 47 in 1997.
Changes announced recently to anti-dumping procedures, including the dissolution of the
Anti-Dumping Authority and consolidation of all anti-dumping investigations within one
body (the Australian Customs Service), have considerably shortened the investigation
period, raising questions about the effectiveness and thoroughness of the investigation
during this shorter period. Questions also arise regarding the seemingly enhanced role of
local industry in the new investigative process, which is intended to benefit local
industry and meet long-held industry concerns. In addition, the revised appeal mechanism
allows only for a review of the interpretation of current information. The Government's
scheduled inquiry into anti-dumping under the Competition Principles Agreement will be
delayed to allow implementation of the new arrangements.

Sectoral Policies

Since the previous Review,
border measure reforms, including tariff reductions and tariffication or removal of
non-tariff barriers, have continued. Between 1993 and 1998 the simple average tariff,
according to broad ISIC categories, has declined from 0.9% to 0.3% in agriculture, from
1.1% to 0.6% in mining and from 11.1% to 6.0% in the manufacturing sector. Australia bound
around 96% of its tariff lines as a result of the Uruguay Round (100% in agriculture and
over 94% in manufacturing according to Secretariat calculations based on HS 92), compared
to 20% previously.

As a result of declining
tariff protection and sectoral government subsidies, average effective rates of assistance
(ERAs), measured (according to ASIC categories) by the Industry Commission, have declined
from 11% to 6% for manufacturing since the last Review; assistance for agriculture
increased slightly from 11% in 1993/94 to 12% in 1995/96, from a level of 15% in 1990/91.

Despite declines in ERAs,
there are considerable variations among to industries. In the agricultural sector, the
dairy industry (especially milk production) receives assistance in excess of 200%, and in
manufacturing, TCF and PMV industries receive assistance in excess of three times the
manufacturing average. ERAs do not take into account any assistance provided by
Australia's quarantine laws, especially in the agriculture and food processing sectors,
and may therefore understate the degree of overall protection extended to these sectors.

In the services sector,
which accounts for around 70% of GDP, Australia made commitments in over 90 sectors and
sub-sectors, with MFN exemptions in financial and audio-visual services. As part of the
WTO Agreement on Financial Services, Australia removed its MFN exemption relating to the
stock exchange. In addition, mergers between the four largest banks and the two largest
insurers are permissable under the 1997 financial sector reforms, although they must be
approved by the Treasurer; mergers among the four largest banks, however, are not
permitted. In its offer in the WTO Agreement on Telecommunication Services, Australia
allowed unrestricted competition in basic telecommunication services as of July 1997 and
has removed its foreign equity restrictions in the second basic service provider, Optus.
Trade liberalization in the services sector has also been pursued under the Services
protocol signed with New Zealand, under which the services sectors included in a
"negative inscription list" have gradually been reduced, exposing them to a
greater degree of competition.

Since the previous Review,
major market opening has taken place in financial and telecommunications services; reforms
have also been implemented in air transport services. In addition, Australia's new
competition policy provides for the opening of utilities, including gas and electricity,
to competition. This is important, given the essential contribution of these services to
manufacturing and agricultural activities and to overall productivity. However, other
vital services sectors such as maritime and port services remain to be reformed, although
some liberalization of coastal trade regulations was announced by the Government recently.

Trade Policies and Foreign Trading Partners

Australia's unilateral trade
reforms - particularly tariff reductions - have gone beyond the scope of its Uruguay Round
commitments. Major changes introduced since the previous Review to comply with its WTO
commitments include the tariffication of remaining quantitative restrictions in
agriculture; amendments to farm legislation to comply with the WTO Agreement on
Agriculture; and changes to anti-dumping and countervailing procedures and to intellectual
property rights legislation.

As Australia reduces its
import tariffs, preferences for developing countries provided through the ASTP are also
gradually being reduced. Apart from its bilateral agreements, notably ANZCERTA with New
Zealand, CANATA with Canada, and PATCRA with Papua New Guinea, Australia has limited
involvement in regional trade agreements. Its participation in the Asia Pacific Economic
Cooperation Forum (APEC) is carried out within the broader goal of maintaining "open
regionalism" within multilateral rules.

Australia remains strongly
committed to the multilateral trading system and, through the Cairns Group emphasizes the
importance of further multilateral reforms in agriculture. In particular, Australia seeks
to place agriculture on the same footing as industrial products, stressing elimination of
export subsidies and deep cuts in domestic subsidies, and substantially improved market
access through deep reductions in tariffs and elimination of non-tariff barriers.

However, recently, there has
been an increased emphasis on bilateral efforts to open foreign markets to Australian
exports in addition to Australia's continuing participation in the multilateral trading
system. This is reflected in several recent schemes (notably the Supermarkets to Asia
Council; the Market Development TaskForce; and the appointment of market access
facilitators for a number of industries), which identify markets and emphasize bilateral
negotiations to increase market access. Australia has also increased export credit
insurance for exports to the Republic of Korea and to Indonesia in response to the
worsening crisis in Asia and to increased export facilitation, especially in agriculture,
by major competitors in the region. It is unclear what the long term implications of such
export guarantees are for international commodity prices or whether they will result in an
escalation of export subsidization.

Outlook

The success of economic
reform in general, and unilateral trade liberalization in particular, is reflected in the
relatively strong performance of the Australian economy since the early 1990s. With the
exception of the relatively high and stubborn unemployment rate of over 8% and a
structural savings-investment gap, the benefits of reform have been evident in higher
rates of productivity and GDP growth. However, despite these benefits, the Government
appears to be hesitating over pushing through further reform, especially of industries
that continue to be relatively protected. In addition to creating anomalies and
distortions in the tariff and assistance structure, such hesitation may give mixed signals
to producers and consumers about the Government's commitment to future reforms and their
direction. Australia's new industry policy, moreover, appears to have taken a more
interventionist role in encouraging foreign investment based on its "strategic"
importance to the country, a stance which may cause further resource misallocation.

Challenges, especially high
rates of unemployment and the difficulties of structural adjustment in traditional
industries, are likely to continue to confront policymakers. However, it is unlikely that
resorting to second-best trade measures, such as tariffs or export incentives to offset
distorting government policies, will solve these problems. Rather, there is a need for
continued reform to address unnecessary regulatory measures and structural rigidities that
impair the competitiveness of Australian industry.

Since the mid-1980s,
Australia has undertaken significant economic deregulation and reduced trade barriers
substantially. Globally, it has been a strong advocate for trade and investment
liberalization. This commitment to liberalization and reform has continued since the last
Trade Policy Review of Australia in 1994.

In a globalizing world,
Australia's economic well-being and growth depend on healthy domestic economic settings
and open international markets. In this context, the Government is committed to creating a
more productive and outward-looking economy, while at the same time supporting an open
international trading system. Trade and investment policy, industry policy and
microeconomic reform go hand in hand in providing Australian business with the competitive
foundations and market opportunities to thrive in an increasingly globalized world.

The Australian Government's
1997 White Paper on Foreign and Trade Policy, In the National Interest, identifies
security, jobs and living standards as the core national interests on which foreign and
trade policies are basedSee footnote 2See footnote 3 It advocates
an integrated national approach in developing domestic, foreign and trade policies, and an
integrated bilateral, regional and multilateral approach in progressing Australia's trade
policy interests. These are covered comprehensively in the Government's annual Trade
Outcomes and Objectives StatementSee footnote 4See footnote 5

Australia strongly committed to multilateral
trading system and to reducing trade barriers

Australia is a staunch
advocate of a rules-based, free and open global trading environment. Australia continues
to promote trade liberalization at home and overseas, with trade policy strategies
designed to achieve the best possible market access outcomes for Australian business.
Australia is an active participant in WTO activities and a leader in APEC trade
liberalization efforts. Important advances in the past two years have included:

- significant market access gains under the WTO Financial Services
negotiations and major improvements in access, transparency and predictability in
telecommunications services trade under the WTO Telecommunications Services Trade
negotiations;

Over the past two years, the
Australian Government has pursued economic policies aimed at strengthening firms'
international competitiveness through increased productivity. Eliminating the underlying
budget deficit, maintaining low inflation, encouraging greater domestic competition,
streamlining regulation, reducing structural impediments to growth and employment,
reforming the financial sector and encouraging inward investment are key elements of those
policies.

Since 1996, the Australian
Government's medium-term fiscal strategy has been to secure and maintain a balanced
budget. The primary objective is to increase national savings and improve Australia's
long-term growth prospects by reducing its vulnerability to external shocks. The
Government's recent Budget Statement projects an underlying budget surplus of $2.7 billion
for 1998/99, compared to an expected underlying deficit of $1.2 billion in 1997/98.

Australia's monetary
policies aim to keep underlying annual inflation in a 2-3% band. Inflation has been
maintained below 5% since 1991 and below 2.5% since 1995, the lowest level among OECD
members.

Macroeconomic policy changes
have been complemented by a wide range of microeconomic reforms to increase productivity
and flexibility and allow product, labour and financial markets to operate more
efficiently. These reforms focus on labour markets, financial system regulation, the
waterfront, domestic competition policy and taxation.

In relation to labour market
reform, the Government, through the Workplace Relations Act 1996, aims to give
employers and employees primary responsibility for setting wages and conditions, so that
outcomes better reflect the economic conditions facing individual workplaces.

In the financial sector,
reforms in response to the 1997 Financial System Inquiry will build on the major reforms
undertaken in the 1980s. The aims are to enhance competition and efficiency, improve the
regulatory structure, and reduce barriers to entry into deposit-taking and other areas,
while preserving the financial system's integrity, security and fairness.

On the waterfront, the
objective is to raise labour productivity and create a more efficient and reliable
shipping services industry which meets world best-practice operations and does not impede
trade or adversely affect Australian businesses' international competitiveness. Shipping
reforms will include ending the pooled labour system, reducing the costs of Single Voyage
permits and Continuing Voyage permits (which allow foreign vessels coastal access), and
removing cabotage on Christmas Island trade.

Competition Policy

Federal, State and Territory
Governments established the National Competition Policy in April 1995. The reforms:

See footnote 6 Themajor
initiatives aim to encourage innovation, investment and exports (three key drivers of
economic growth); to improve Australia's attractiveness as a regional financial centre;
and to ensure that Australia benefits from the global information revolution. Key
trade-related features include a more competitive customs regime through a new
Manufacture-in-Bond system and a new scheme combining existing duty and tariff concession
programs. These are complemented by action agendas which will encourage information
industry development (e.g. by removing tariffs on IT inputs) and addressing impediments to
growth in the food, financial services, tourism, chemicals and plastics, renewable energy,
liquefied natural gas, automotive, and textile, clothing and footwear industries.

This policy is part of an
ambitious economic reform agenda designed to build a strong economy that will be able to
thrive among the challenges and opportunities of the twenty-first century. By encouraging
a more strategic approach to grasping the opportunities open to Australia as a globally
oriented nation, the industry policy meets community demands for a greater sense of
direction and policy predictability.

Moreover, the measures
announced in Investing for Growth are strikingly similar to the policy priorities
highlighted by OECD Industry Ministers at their meeting in Paris on 3-4 February 1998.
They agreed that sustained economic growth will only be achieved if governments maintain a
sound macroeconomic framework and set policies which improve their industries'
competitiveness, encourage investment and recognise the central role of research and
development.

Foreign Investment Policy

Australia's foreign
investment policy is framed and administered to encourage investment consistent with
Australia's interests. The objectives are: to ensure that Australia is an attractive
location for sustainable, long-term investment that creates employment and benefits the
wider community; to encourage the establishment of new industries or expansion of existing
industries, especially in high value-added sectors; to generate export earnings; to
improve industry competitiveness and productivity; and to ensure that any incentives are
consistent with Australia's international obligations.

Under the Government's
foreign investment policy and the Foreign Acquisitions and Takeovers Act of 1975, the
Treasurer may need to be notified of proposals by foreign interests to invest in
Australia. For non-sensitive sectors (i.e. all except real estate, civil aviation, media
and telecommunications), proposals for acquisition of a substantial interest in an
existing business with total assets of less than A$5 million (A$3 million for rural
properties), and proposals for an initial investment of less than A$10 million in a new
business, are exempt from notification. Proposals for investments exceeding
these amounts are normally approved unless they are judged contrary to the national
interest. The national interest 'test' is a 'negative test', with the onus essentially on
the authorities to have reason to reject, rather than on the investor to show benefit to
Australia. Approvals are not withheld on national interest grounds except in unusual
circumstances affecting Australia's vital interests and development (2.5% of 4200
proposals were rejected in 1996/97, mostly proposed real estate transactions). Foreign
investment policy is currently under review as part of the Government's comprehensive
review of legislation imposing costs on business (see Regulation Review below).

In the Industry Statement,
the Government announced that it will consider incentives to make investment in Australia
more attractive. The primary requirement is net benefit to Australia, and candidates
(domestic and foreign alike) must demonstrate a prima facie case against the
criteria and the need for incentives before they will be considered. Cabinet will consider
incentives for major investment projects on a case-by-case basis in limited and special
circumstances, in line with a set of published eligibility criteria (see WTO Secretariat
Report, Chapter III, for details)

Regulation Review

Complementing all these
policies is a significant Australia-wide regulation review process arising out of the
Competition Principles Agreement signed by Federal, State and Territory Governments in
1995. An important objective is to significantly reduce the paperwork and compliance
burden on small business by simplifying taxation compliance, providing easier access to
government information and reducing complexity, duplication and delays in regulatory
approval processes. The Federal Government, for its part, has commenced the review process
in line with its Legislation Review Schedule. The guiding principle is that legislation
should not restrict competition unless the public benefits of such restriction can be
demonstrated to outweigh the costs associated with any restrictive arrangement.

Taxation Reform

Reform of Australia's
taxation system is high on the Government's economic agenda. A Taxation Taskforce is
assisting the Government to examine options for reform, in order to make the tax system
simpler, fairer and more efficient. The Taskforce's broad guidelines are: not to increase
the overall tax burden; to reduce personal income tax with special regard for families; to
consider a broad-based, indirect tax to replace some or all of the existing indirect
taxes; to provide appropriate compensation for those deserving special consideration; and
to address Commonwealth/State financial relations. The Government plans to announce its
tax reform programme before the next election.

Australia's Trade Policy Objectives and Issues

Australia's trade policy is
flexible and pragmatic, with a fully integrated bilateral, sectoral, regional and
multilateral approach to achieving market access outcomes. It is increasingly
results-oriented and focuses on providing tangible market solutions for Australian
business. As we move into the twenty-first century, Australia's trade policy will need to
incorporate a broader and more complex agenda closely linked with industry and
microeconomic policy.

seeks
to ensure an efficient, consistent and focused approach across key portfolios in setting
and achieving bilateral trade objectives for 25 target markets. In addition to bilateral
market access negotiations, Federal, State and Territory Governments have extensive trade
development efforts in Asia, Europe, North America and numerous emerging markets. Sectoral
trade facilitators in the Department of Foreign Affairs and Trade (appointed in 1997/98)
coordinate business input on issues that affect market access and trade development in
sectors such as food, information technology, automotive products, and textiles, clothing
and footwear.

APEC and Open Regionalism

Australia's regional trade
policy aims to build upon the multilateral system's trade and investment liberalization
goals and gains, and to advocate and protect Australia's interests in a variety of
regional fora. This complements in an important way Australia's multilateral and bilateral
policy activities and objectives.

The Asia-Pacific Economic
Cooperation forum (APEC) is the cornerstone of Australia's regional trade policy.
Australia has been at the forefront of efforts to secure freer trade and investment among
APEC members, as the best means of achieving sustainable economic development. Much of
APEC's work centres around achieving the 1994 Bogor Declaration goal of free and open
trade by 2010 for developed members and 2020 for developing economies.

APEC is not a preferential
trading arrangement. Rather, it is based on the principle of open regionalism in which
trade is conducted on an MFN basis. APEC complements multilateral trade liberalization
efforts by seeking to progressively reduce and remove barriers to trade and investment. In
APEC, Australia is encouraging members to strengthen their Individual Action Plans (IAPs),
and to support early voluntary liberalization of specific sectors. See footnote 7 APEC Leaders, at their
November 1997 Vancouver meeting, agreed to accelerate trade liberalization in 15 sectors,
including two put forward by Australia (energy and food) and one co-sponsored by Australia
(chemicals). Liberalization of nine sectors, including energy and chemicals, is to be
fast-tracked for implementation in 1999.

The Australia-New Zealand
Closer Economic Relations agreement (CER), recognised as one of the world's most
comprehensive, effective and multilaterally compatible free-trade agreements, celebrates
its fifteenth anniversary in 1998. AFTA-CER and CER-Mercosur dialogues will continue to
focus on trade facilitation and harmonization issues. Australia is also advancing its
objectives of increased regional engagement through the Australia-Indonesia Development
Area (AIDA) and the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC).

Regional trading
arrangements (RTAs) are an important feature of the global trading system. In 1997, a
major review of Australia's policy on participating in RTAs concluded that Australia could
in future consider the option of joining them if it is in its interest. The Government
recognises that while RTAs can offer their participants potential advantages, they can
also impose costs on members as well as non-members. Firms outside can face discriminatory
arrangements which could potentially contribute to the fragmentation of the
nondiscriminatory trading system. Australia will continue to promote stricter multilateral
rules and disciplines for RTAs. It will also encourage quicker multilateral and APEC
liberalization processes in order to reduce the incentive for countries to resort to
discriminatory regional solutions in order to address trade-related issues.

Multilateral Efforts

At the multilateral level, a
key objective of Australia's trade policy is to improve market access and achieve a fairer
global trading environment via the WTO, which is important to Australia because it is the
major forum for global trade liberalization. Through its rules and disciplines, the WTO
provides a more predictable and transparent environment for business, as well as a means
for resolving disputes. At a time of turbulence and uncertainty in international financial
markets and increased global interdependence, this rules-based system is essential to
economic growth and prosperity. (See Part III: Australia and the WTO,
for details.)

Trade Liberalization

Progressive trade
liberalization over the past decade has served Australia well. Indeed, Australia is
pushing hard for the liberalization of trade and investment regimes overseas because we
are convinced that open markets are important, not only for Australian exporters, but for
sustaining and increasing living standards in general. Tariff reductions introduce healthy
competition, make companies more cost- and service-conscious, and offer consumers broader
choice and better prices . Over the past decade, the average Australian family has saved
more than A$1000 per year from tariff reductions. The average effective tariff on
manufactured imports fell from 22% in 1984-85 to 7% 1996-97 and will decline to 5% by
2001.

Australia's applied tariff
regime compares favourably with the rest of the world. Most goods enter Australia duty
free. Australia's unweighted (simple average) ad valorem tariff level is 5.6% (9.6%
in 1993). Australia bound around 96% of its tariffs as a result of the Uruguay Round (from
20% in 1993). In some cases, Australia has brought forward its final Uruguay Round tariff
bindings. For example, as part of its APEC Individual Action Plan, Australia advanced by
one year to 1 January 1998 the final bound rate on some industrial and
agricultural products, and has bound these accelerated reductions in the WTO.

Australia continues to
reduce tariff barriers on a unilateral basis. Of particular note was the Government's
decision in July 1997 to remove tariffs on imports of raw and refined sugar and related
products, opening fully this important (and domestically sensitive) sector to
international competition.

However, Australian exports
continue to face tariff and other trade barriers overseas as other economies continue to
protect local industries. Australia takes every opportunity at bilateral, regional and
multilateral fora to encourage our trading partners to meet their existing commitments and
to liberalize further.

The TCF and PMV Sectors

In two important industry
sectors: textiles, clothing and footwear (TCF) and passenger motor vehicles (PMV), tariffs
continue to be phased down unilaterally, but remain above the general 5% level. These
industries are important employers, including in regional Australia. Acknowledging that
tariff reductions can impose significant short-term costs on individual industries, the
Government has given them some extra time to strengthen their capital bases and enhance
their international competitiveness in the lead-up to the APEC target of free trade beyond
2010. See footnote 8

In the case of motor
vehicles, tariffs will be reduced from 20% in 1998 (32.5% in 1993) to 15% on 1 January
2000 and will 'pause' at that level for five years. The Government has said it will
introduce legislation this year to further reduce the tariff to 10% on 1 January 2005.
Another review will occur in 2005.

'Peak' tariffs for clothing
and finished textiles will continue to decline from 31% in 1998 (41% in 1993) to 25% on 1
January 2000 and will remain at that level until 2005. The Government plans to legislate
this year to further reduce the peak tariff to 17.5% on 1 January 2005. Similarly, tariffs
on all other TCF products will decline from a range of 5-22% at present to a range of
5-10% by 2005. In other words, between 1998 and 2005, TCF tariffs will decline by about
half.

The PMV and TCF 'tariff
pauses' do not signal a change in the Australian Government's commitment to tariff
reductions and trade liberalization generally. Rather, the decision reflects the
Government's desire to achieve balanced outcomes in the interest of the community as a
whole, and to provide greater predictability for industry while at the same time ensuring
that Australia meets its international obligations. Given that average general tariff
levels are just 5% and Australia is committed to free trade within APEC by 2010, tariff
pauses in other sectors are not envisaged.

Access for TCF products to
the Australian market is not hindered by quotas. Australia removed its last TCF quota in
1993, and its TCF tariff lines are fully integrated under the WTO Agreement on Textiles
and Clothing.

Export Assistance

The Government gives high
priority to trade promotion and exporter advisory services to encourage Australian firms
to develop markets offshore and to take advantage of the opportunities offered by improved
market access. In line with its fiscal consolidation program, however, the Government
discontinued such programs as the International Trade Enhancement Scheme (ITES) and the
Innovative Agriculture Marketing Scheme (IAMP) in 1996. It has also capped funding for the
Export Market Development Grants (EMDG) Scheme, which was established in 1974 to boost
exports by reimbursing part of eligible firms' (mostly SMEs) export promotion expenditure.

Anti-dumping and Countervailing Measures

Australia's anti-dumping and
countervailing policies are designed to provide relief to Australian companies injured by
overseas goods sold at a lower price than their 'normal value' in their home market. The
system is industry-driven and conforms to the WTO Agreement on Anti-dumping and
Countervailing Measures. Under Australian legislation and consistent with WTO
requirements, anti-dumping action can be taken only if dumped items cause or threaten
material injury to local producers of similar goods. The number of anti-dumping cases
initiated by industry declined from 51 in 1993/94 to 36 in 1997/98 (to May 1998). See footnote 9 Most have been in
the chemical and petroleum products (13 cases) and paper (14 cases) sectors. Furthermore,
the number of anti-dumping and countervailing measures has been cut from 101 at end-1995
to 54 at end-1997.

In February 1998, the
Government proposed changes to Australia's anti-dumping procedures which will reduce the
investigation period and provide a simpler, more predictable and expeditious process for
all parties: importers, exporters and local industry alike. The main features are: (1)
abolishing the Anti-dumping Authority; (2) reducing the investigation period from 215 to
155 days; and (3) establishing a new independent appeal mechanism. In addition, all
interested parties will be given 20 days to examine and respond to the Statement of
Essential Facts of a case as presented by the Australian Customs Service. The proposed
legislation, currently before Parliament, will permit provisional measures to be imposed
at any time after Day 60 of an investigation, following a public determination indicating
grounds for such measures, as required by the WTO Agreement.

Australia's Quarantine Regime

Australia's prudent approach
to quarantine and sanitary and phytosanitary regulations reflects its island geography,
which has isolated it from many exotic diseases and pests, and its unique flora and fauna.
More often than not, Australia's access to other markets depends on its favourable animal
and plant health status. Up to 80% of Australia's agricultural output is exported, with
foodstuffs accounting for 22% of total merchandise exports.

GATT/WTO rules recognize
countries' right to maintain measures to ensure food safety and to prevent the spread of
pests or diseases among plants and animals. Australia, as a relatively disease- and
pest-free island continent, is keen to maintain this status. Consequently, all imported
plants, animals and associated products, including food, are subject to a rigorously
enforced quarantine regime, which is consistent with international rules and standards.

The Government, in response
to independent reviews of Australia's quarantine policies and practices in 1996 and 1997,
has committed (among others) to:

places
high priority on negotiating with prospective WTO members improved access for Australian
services exporters, particularly in financial services, telecommunications and
professional services. Australia is also negotiating commitments on transparent and secure
operating conditions. In current (May 1998) negotiations on accountancy disciplines, the
Government has sought commercially meaningful, universally binding WTO regulations.
Australia expects that once the accountancy negotiations are concluded, a generic approach
to other professions will be adopted. Taking a leading role in advancing WTO preparations
for the next round of services trade negotiations, scheduled to commence in 2000,
Australia is keen to see further truly liberalizing market access and national treatment
concessions in the key areas of interest noted above.

Industrials

Australia supports further
negotiations on industrial tariffs as part of comprehensive negotiations in 2000.
Australian industry continues to face high tariff and non-tariff barriers for many
products. Broad-based negotiations incorporating a balanced framework and the full
involvement of all WTO members will be necessary to move the liberalization agenda
forward.

Information Technology Agreement

Australia has secured
significant benefits by pursuing improved market access conditions through the WTO
Information Technology Agreement and the WTO Agreement on Trade in Telecommunications
Services. Australian industry and Government jointly have developed Australia's position
for the ITA II negotiations. Australia considers that one of ITA II's most important
features is its desire to ensure that non-tariff measures do not undermine ITA tariff
commitments. Priorities for Australia in ITA II negotiations will include accelerating
tariff reductions in key markets (India, Malaysia and Indonesia); extending ITA
participation; examining non-tariff measures which affect trade in ITA products; and
identifying additional products (eg, chemical inputs) for the ITA list.

Accession Negotiations

Australia encourages an
expansion of WTO membership through the admission of new members on commercially
acceptable terms. Australia sees WTO accession negotiations as offering a unique
opportunity to improve market access and secure commitments for greater transparency and
stability in trading conditions. Among the more than 30 economies negotiating accession to
the WTO are seven which buy over A$8 billion worth of Australian products each year, or
10% of our total exports (China, Chinese Taipei, Vietnam, Saudi Arabia, Jordan, Oman and
Russia). The successful conclusion of accession negotiations with these economies will
bring important segments of Australian trade under WTO rules. It is important to the
Government that the WTO is not weakened through the admission of new members which are not
fully committed to its rules. WTO accession is an important step in these economies'
integration into the world trading system, and Australia provides technical assistance to
help them achieve the reforms necessary to comply with WTO rules.

Dispute Settlement

One of the key outcomes of
the Uruguay Round was a stronger multilateral dispute settlement system. The WTO Dispute
Settlement Understanding (DSU) of 1995 removed disputing parties' powers to veto adoption
of panel reports and introduced an appellate system. The large number of disputes dealt
with under the DSU - more than 120 requests covering 87 distinct matters - and the number
of members involved indicate that the system is functioning effectively and is generally
well accepted. Australia has been involved in 14 disputes initiated under this mechanism:
two as a complainant, four as a respondent and eight as a third-party participant (see WTO
Secretariat Report, Chapter II, for details).

From Australia's
perspective, the extensive use of the DSU over this initial period has contributed to
increased confidence in the multilateral trading system. At the same time, a number of
procedural and substantive matters have emerged which will require detailed consideration
by members in coming years. In this respect, Australia is taking a close interest in the
DSU review scheduled to be completed this year. Australia strongly supports the dispute
settlement mechanism and will continue to work towards its optimum effectiveness.

Australia's
Position on 'Current' Trade Issues

Electronic
Commerce: Australia supports placing on the WTO agenda the issue of the implications
of electronic commerce for the General Agreement on Tariffs and Trade (GATT), the General
Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS), to examine if existing WTO rules are adequate or if
new rules are required.

Investment: Australia supports the principle
of an effective rules-based regime in the WTO covering trade-related investment issues.
Australia is actively involved in exploratory work in the Working Group on Trade and
Investment.

Competition Policy: In this highly complex
area, Australia actively supports an exploratory, educative discussion on the interaction
between trade policy and competition policy as a foundation for considering how the WTO
might handle this issue in future.

Trade and Environment: Australia strongly
advocates that economic, environment and trade interests be given balanced treatment in
international discussions and that international agreements respect the sovereign right of
countries to determine appropriate domestic environmental policies. Australia strongly
advocates improved coordination of trade and environment issues, both at the national
level and in international fora such as the WTO Committee on Trade and Environment (CTE).
Australia actively supports efforts to make trade and environment policies mutually
supportive, particularly through reform of trade-distorting policies that adversely affect
the environment.

Government Procurement:
Australia is taking a close interest in the review of the WTO Agreement on Government
Procurement. Australia hopes that related work of the Working Group on Transparency in
Government Procurement and the Working Party on GATS rules will deliver significant
improvements to the Agreement, in both the principles and the practices

The Agreement on Sanitary and Phytosanitary
Measures (SPS Agreement)

As a major exporter of
agricultural products, Australia attaches great importance to WTO Agreements on the
application of Sanitary and Phytosanitary Measures and on Technical Barriers to Trade
(TBT). Australia is an active participant in the SPS Committee. The 1998 review of the SPS
Agreement will be an important priority for Australia, which has a strong interest in
ensuring that the SPS Agreement operates effectively in terms of both ensuring fair access
to markets and safeguarding our largely pest- and disease-free status, an important
element of our comparative advantage in agriculture.

Intellectual Property

Australia advocates the need
to harmonize and bring certainty to intellectual property laws worldwide, including those
governing biotechnology. It will be an active participant in the review of the TRIPS
Agreement in 2000, monitoring closely issues related to biotechnology, geographical
indications for wine, and copyright for new technologies and electronic commerce.

Rules of Origin

Australia wishes to see the
Harmonization Work Programme on Rules of Origin produce an acceptable, fair and workable
set of rules within the agreed timeframe. Australia has made a strong commitment to
achieve this objective in the WTO Committee on Rules of Origin and in the Technical
Committee on Rules of Origin in Brussels, both of which it chairs. It acknowledges,
however, that progress remains slow, mainly because it is a very complex and difficult
process.

Standards and Conformance

Among non-tariff barriers to
trade, standards and conformance issues have an important impact on Australian exports.
Australia is therefore seeking - bilaterally, regionally and multilaterally - the
alignment of standards, mutual recognition of conformity assessment, and good regulatory
practices.

Future Direction of Australian Trade Policy

Australia is committed to
trade liberalization and will continue to pursue trade policies which support
international efforts to achieve freer and more open trade through reduced tariff and
non-tariff barriers. To this end, Australia will remain an active participant in WTO trade
liberalization efforts. Similarly, the Government is fully committed to its tariff
reduction program, aiming to meet the 1994 APEC Bogor Declaration goal of free and open
trade by 2010/2020. It will also continue to pursue domestic economic policies aimed at
reducing structural impediments to economic development and employment growth. Bilateral,
regional and multilateral strategies will remain essential elements of the Government's
trade policy.

Australian trade and
investment polices and measures will continue to reflect the Government's desire to
encourage business to capitalise on opportunities arising from globalization, improved
market access conditions and the information revolution. Streamlined regulation, increased
transparency and broader consultation will provide clearer parameters in which to pursue
trade and investment opportunities.

Over the coming years,
Australia will face numerous challenges in its international trade relations. The economic
uncertainties in East Asia will impact on Australian exports and economic growth;
accession of new members to the WTO and APEC may alter these organizations' internal
dynamics; and we will need to guard against any resurgence of protectionist sentiments in
the global trading environment. The international trade agenda will become more complex as
issues affecting domestic regulatory regimes and rules affecting investment are debated
more frequently, and as pressures rise to include particularly sensitive issues. Australia
believes that the best approach to dealing with these issues is to maintain a flexible,
pragmatic and focused trade policy; to highlight the significance of the rules-based
multilateral system in delivering prosperity; and to persist in efforts to improve it.

By continuing to develop a
framework for fair and transparent trade, and by addressing the challenges of
globalization and issues such as new technologies, the environment, investment and
competition, the international trading system can contribute toward sustainable economic
development for all economies. Australia is therefore keen to see broad-based multilateral
negotiations, embracing agriculture, services and industrial tariffs, commence by 2000.
This will complement other WTO work and benefit all WTO Members. Back to top

Footnote:
1Group of "free trading" agricultural exporting nations formed in 1986 in
Cairns, Australia, to present their common interests and concerns in the agricultural
negotiations of the Uruguay Round. It comprises Australia, Argentina. Brazil, Canada,
Chile, Colombia, Fiji, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South
Africa, Thailand and Uruguay.

Footnote:
9 By comparison, in 1996/97, the US had 305 anti-dumping
actions, the EU 157, Mexico 100 and Canada 95. In the same year, the US had 68
countervailing duty actions, Mexico 11, Brazil 11 and Australia 6.Back
to top